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MPs' warning on money schemes; PENSIONS.

Byline: Nevill Boyd Maunsell

The Pensions Regulator should look more closely at money purchase defined contribution pension schemes and do more to see that people contributing to them understand the risks involved, writes Nevill Boyd Maunsell.

The Commons Committee on Public Accounts praised the Regulator's work on final salary schemes, while warning that it had done less in the "considerably riskier" area of defined contributions.

These are schemes where contributions paid by members and their employers are invested to yield a "pension pot" to buy a pension when the individual retires - without any guarantee of what that pension will be worth.

Employers state how much they will pay into the scheme, but individuals face all the risks from investment decisions, interest rates when they come to retire and rising life expectancy, which adds to the cost of all pensions.

There is also the risk that a small pension may do no more than disqualify its owner from means-tested pension tax credits and other state benefits.

In recent years, money purchase schemes have seen a big increase in the number of people as companies close their more expensive final salary ones to new members.

The committee warned that many of them do not understand the risk they face and the Pensions Regulator has done little to inform them.

They called on it to review with the Financial Services Authority the adequacy of information provided to members about their likely pensions and fill any gaps.
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:Apr 24, 2008
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